A reinforced safety net is a priority for the next farm bill, but a customized fit has proved difficult to fashion and sprouted unintended consequences

The farm problem. Sounds pretty simple and straightforward. The farm
problem is what lawmakers and much of America are debating as Congress
attempts to pass a new farm bill to replace the controversial 1996 Freedom
to Farm law, which expires later this year. The House and Senate have
separate proposals that would increase planned spending on farm-related
programs by more than $70 billion over the next 10 years.

Get past the cover of either proposal, and the farm problem gets
fuzzy quickly. The Senate bill is better than 900 pages long, the
House version almost 400 pages. Included are literally dozens and
dozens of wide-ranging programs covering crop support, environmental
protection, rural development, agricultural trade and trade promotion,
nutrition, research and education.

"The problem? I'm not sure [lawmakers] know. It's so entangled
with politics and favors that I think the reality of [identifying
the problem] doesn't even occur to them," said Foster Mooney,
a sheep and vegetable farmer in Chisago City, Minn. Given all the
lobbyists and special interests jockeying for position in the new
law, Mooney said, "if the right thing comes out, it's truly
a coincidence."

Though often unwieldy in wording and imposing in implementation,
the intent of farms bills past and present is to achieve a singular
outcome: provide a better safety net-particularly an income net—that
protects U.S. farmers when they lose their footing because of a
host of perils.

The biggest banana peel of the last half-decade has been low commodity
prices, which has caused farmers' net income from sales to drop
from more than $50 billion in 1997 to about $35 billion just two
years later. Income has only been inching up since; in 2002, net
income from farm sales is forecast to be $40 billion, according
to the Economic Research Service (ERS), a research arm of the US
Department of Agriculture (USDA).

During this time, government has provided the yeast to help farmers'
income rise to more comfortable levels. Since 1997, farmers have
received more than $80 billion in direct government payments, including
better than $20 billion in each of the last three years.

Most agree something needs to be done in the next farm bill to
help struggling farmers. But the discussion about exactly what to
do quickly splinters, even among farmers. "You ain't going
to get two of them to agree," Mooney said.

That even holds true for farmers in the same sector. "Somebody
in California wants something different than [a farmer] in Wisconsin.
A farmer with 500 cows wants something different than one with 700
cows," said Shane Goplin, who is working with his older brother
to take over their father's 700-head dairy operation in Osseo, Wis.
"We can't unite on one specific thing we need. Somebody complains
that somebody's getting more. It's like organizing a pack of wild
dogs."

That might be part of the reason why farm policy is so unwieldy.
"We in ag do not always agree and we cannot always get what
we think would be ideal from Congress," said Dan DeBuff, a
family wheat farmer in, appropriately enough, Wheatland County in
central Montana. "So we end up asking for something that we
think we can get, and this sometimes takes us backwards because
we have no long-term, comprehensive plan."

Said one small farmer in Minnesota, "Federal farm policy has
a tiger by the tail and does not know how to let go of it."

But while political camps arm-wrestle over final funding and other
program details for mending the farm safety net, in the end the
core of the new farm law will likely push forward a 70-year legacy
of federal policy to support, and sometimes even guarantee, farm
income. This policy predisposition has managed a few major victories.
But so too has such policy missed many of its targets and created
a bushel basket of unintended consequences.

Planting the seeds of support

Farm income support has been around since 1933, when Congress introduced
price supports and supply restrictions with the Agricultural Adjustment
Act, the first comprehensive government effort to raise and stabilize
farm prices and incomes. Since then, taxpayers have spent $560 billion
(in constant 2000 dollars) to support farm prices and incomes, according
to different government and academic sources. Since 1950, government
support has averaged about $9 billion annually.

The motivation of the 1933 law was clear. Average farm income
at the time was about half that of other workers. That's no longer
the case today, as average income among farm households—better
than $60,000—now exceeds that of the average US household.
However, most farm households get the majority of their income from
off-farm jobs. Without government payments the last several years,
many district farmers would look like volunteers, having earned
little or nothing for their work.

One source with a North Dakota farm agency said that "without
government payments, state farmers would be flat broke." He's
not kidding. In 1999 and 2000, North Dakota farmers had net income
from farming of not quite $1.3 billion, according to USDA data.
During those years, farmers received almost $1.1 billion from various
government programs, according to the Environmental Working Group,
a Washington, D.C., research organization, which conducted an exhaustive
analysis of subsidy payments to individual farmers.

They would also have plenty of company on the tractor. During the
same period, Montana farmers actually saw government receipts (almost
$1 billion) exceed their net income of about $800 million. Government
payments made up about 95 percent of Minnesota farmers' net income
of $3 billion; for Wisconsin farmers, it was about 85 percent. South
Dakota bucked the trend somewhat with only about 60 percent of net
income coming from government in 1999 and 2000.

Lame-duck hunting

Although it had opposite designs, the lame-duck Freedom to Farm
law ultimately reinforced the nation's desire to help farmers in
hard times. It cut away much of the formal, structured safety net
of price floors and other supports in favor of a more market-oriented,
supply-and-demand approach. It took off the federal yoke of supply
management, unleashing farmers to plant as they pleased at a time
when commodity prices were high.

Blessed with good growing conditions, commodity farmers saw bumper
crops several years running. Combined with a simultaneous downturn
in the Asian economy—a major importer for US farmers—supplies
skyrocketed and prices plunged. Stripped of traditional government
supports, farm income fell like a sack of potatoes starting in 1998,
and Congress fashioned a makeshift safety net—a parachute for
free-falling farmers, really—out of annual emergency aid packages.

One source with a North Dakota farm agency said that "without
government payments, state farmers would be flat broke." He's
not kidding. ... They would also have plenty of company on the tractor.

Farmers and lawmakers are now asking for farm support without the
head-rush. "Farm income protection is a fundamental part of
the farm bill," said Iowa's US Sen. Tom Harkin, chair of the
Agriculture Committee that spearheaded the current Senate proposal,
in a September hearing. "We need a better system to provide
adequate income protection without requiring annual emergency legislation."

Farm organizations have also lobbied heavily for a stronger safety
net. In testimony to the House Agriculture Committee, National Farmers
Union President Leland Swenson said the "only responsible way"
to meet existing farm needs was for government to develop "an
adequate and workable safety net for producers," while also
helping to increase demand and improve commodity prices.

Most farmers feel similarly. A survey of farmers in 27 states (including
the Dakotas) by the nonprofit Farm Foundation, in Oakbrook, Ill.,
found that 80 percent of respondents want the government to provide
a farm income safety net and 78 percent want government to maintain
or increase farm spending.

That sentiment also came out in contacts with several dozen farmers
and farm advocates via phone and e-mail. "Price protection
and income support to farmers are central to the [farm bill] debate,"
according to Eric Aasmundstad, president of the North Dakota Farm
Bureau.

As such, a major goal of the new farm bill is to make income support
more overt. For all their complexity and length, both the House
and Senate proposals use a policy tripod—backed with a majority
of the available funding—to put farmers on firmer financial
ground.

First, it would keep in place the fixed, lump-sum payments made
to some farmers under Freedom to Farm that, ironically, were originally
intended to transition farmers away from government assistance altogether.
It also continues the marketing assistance loan program, which has
evolved into a de facto price-floor program (see "A
fair price for whom?"). The third leg is a countercyclical
element whereby government payments kick in predictably and proactively
when farm prices or incomes go south.

While such a mechanism is technically new in farm policy, several
sources pointed out that emergency ad hoc payments the last four
years have acted as countercyclical payments. The new law, said
Anne Effland, a social science analyst with the ERs, will likely
regularize how [federal] money is being distributed."

There's a hole in my policy bucket

But despite the best policy intentions, and despite what averages
and generalizations seem to say about farm income, federal policy
in this area is as much sieve as safety net, with gaps and inconsistencies
that ultimately funnel most of the assistance to certain types of
farmers.

For starters, the farm problem debate implies that assistance should
be available to all farmers of food and fiber. Although planned-program
and emergency payments have gone to apple, cranberry, sheep, potato,
dairy and other farmers in recent years, policy has long had a strong
bias for so-called principal or base commodities—wheat, corn,
barley, oats, sorghum, rice, cotton and oilseeds (mainly soybeans).

An ERs report noted that principal crops accounted for just one-fifth
of total farm cash receipts in 2000, "but are associated with
nearly all direct government payments." As much as two-thirds
of principal crop payments go to corn and wheat farmers because
of their sheer volume.

That commodity predisposition favors district states in a big way.
There are close to 100 million acres of cropland in the district
(including all of Wisconsin and excluding Michigan's Upper Peninsula),
and principal crops are grown on about 75 percent, according to
USDA figures.

That translates into a bountiful harvest of government support.
In district states (not including Michigan), 65 percent of farmers
receive government payments, including about 75 percent of all farmers
in the Dakotas, according to analysis of the 1997 Census of Agriculture
by the Environmental Working Group. Nationwide, about 40 percent
of farmers receive payments. In 1999, Minnesota, North Dakota and
South Dakota all made the top 10 states in total government payments
(see map).

In contrast, consider California farmers. With about $25 billion
in annual farm production, and ranking among the top two states
in 40 different commodities (mostly fruits and vegetables), it is
easily the nation's largest agricultural state. The value of California's
almond exports alone is more than the combined value of Montana's
and North Dakota's top export, wheat. Yet fewer than 10 percent
of its farmers receive assistance.

Current farm policy also funnels most government support to large
farms—the result of payments being based (depending on the
program) on past and current production, again, of principal crops.
Higher production equals a bigger government check. In 2000, just
8 percent of farms—those with sales over $250,000—took
home about half of all government payments.

Many defend the system as a common-sense way to ensure proper food
supply. "Fact is the 300,000 or so farmers who receive the
majority of assistance also produce the majority of food and fiber
in this country and the world. Those that receive small amounts
of assistance do so because they are small operations," said
Tim Dufault, a farmer of wheat, pinto beans, soybeans, alfalfa and
sugar beets on 1,700 acres near Crookston, Minnesota.

Various lawmakers have proposed widening
the safety net to include farmers of nonprincipal crops, and redirecting
proportionately more resources to smaller operations. But the farm
bill template in both houses of Congress continues to favor large-scale,
principal-crop farms. Although some changes are likely in the new
farm bill, principal crops will remain king of the payment pile.

Any widening of the safety net must also deal politically with
flip-flopped fiscal conditions. Farm bills were originally proposed
when the federal government was forecasting hefty surpluses; thanks
to the current economic slump, it's now staring at deficits. Failing
to get a farm bill passed late last year means that it will also
have to battle additional nonfarm spending proposals for a rapidly
shrinking pot of federal money.

And behind door number three

Aside from the fact that the existing safety net misses a majority
of farmers, the legacy of farm income support has also created a
host of unintended consequences.

Land values, for example, are often bid up and largely paid for
by the government payments. Despite volatile and mostly low crop
prices from 1989 to 1999, land values in the Northern Great Plains
(the Dakotas and eastern Montana) increased by 10 percent, which
the ERs attributed to a "sudden and substantial rise in government
payments" during this time. The agency also estimated that
land values nationwide from 1999 to 2001 could be about 25 percent
lower without government payments.

This bidding war, in turn, makes it harder for young farmers to
get started because government payments are "reflected in a
higher price to buy or lease the farmland," according to a
report last year by the General Accounting Office. Often only established
farmers are able to acquire the limited amount of farmland that
becomes available in a given year, the report said. "Accordingly,
many young farmers acquire farmland from family members through
inheritance or as a gift."

In 1991, about 9 percent of all farmers (almost 200,000) were younger
than 35. By 1999, that figure dropped to just 120,000. Once established,
young farmers also tend to have smaller farms, which means they
receive less government assistance when payments are based on volume.

Rising land values aren't all bad for farmers, as payments made
to farmers who own and operate land are capitalized into the value
of the property itself—a forced savings plan where government
payments are deposited into a land-bank, if you will. But at this
point the safety net intentions of farm policy also become a little
less clear, because the average net worth is higher across virtually
all farm types—small and large, part time and full time—compared
with that of the average US household, mostly because of land holdings.
The net worth of large and very large farms—which receive the
bulk of government payments—is three and five times higher,
respectively, than the US average, according to the USDA.

A fair amount of government payments are also leaking into nonfarmer
pockets. ERs has estimated that nonoperator landlords (people who
own farmland and rent to farmers) receive around 13 percent of all
direct government farm payments. According to Jeffrey Hopkins, an
ERs researcher who has studied farm income, "Most people I
talk to assume that all, or nearly all, of the [government] payments
are in practice passed through to landowners who are aware of cash
rental markets in their area."

Already, about 42 percent of all farmland in the nation is in the
hands of nonoperators, a trend that is growing in every district
state, according to USDA figures. In the last two decades, farmland
owned by nonoperators in Minnesota increased by 30 percent, or 3
million acres; in North Dakota, they gobbled up more than 4 million
acres and now own better than 21 million acres, or about half of
the state's farmland.

"Should we penalize those who produce the food for America
and many others—those who saw the future coming and prepared
by trying to be competitive in a world market? ... If [farm policy]
is to be a social program, we should separate that from ag policy."
—Dan DeBuff, Family Farmer

Stamps, baseball cards, farming

Lawmakers and the general public seem to be ardent supporters of
the small family farm. Problem is, nobody can agree on what that
means.

"What is a large farm? Most farmers will tell you a large
farm is one that is 100 acres more than they farm," said Dufault,
the northwestern Minnesota farmer, whose wife works off the farm
full time to make ends meet.

Maybe more to the point, targeting small family farmers for public
assistance brings its own policy baggage. Somewhat arbitrarily,
the USDA considers any farm with less than $250,000 in sales to
be small, a classification that includes more than 90 percent of
farms. But fully three-quarters of all farms have sales of less
than $50,000, and half have sales under $10,000—the equivalent
of selling a truckful of cattle or harvesting several dozen acres
of your favorite commodity.

Of the nation's 2 million farm operations, fewer than two of every
five report that farming is their main occupation (though not all
are considered full time) and a disproportionate share are found
on large farms. USDA analysis found that 85 percent of US farms
"are typically small, do not require a full-time commitment
from the operator and do not provide the majority of the farm household's
income." About 70 percent of the 1.3 million farms that receive
no government payments have sales of $10,000 or less.

Targeting small farms for more public support, therefore, would
likely mean pulling the safety net out from under large farms and
full-time farmers and putting it under mostly part-time farmers.
Such a policy shift doesn't sit well with DeBuff, the Montana family
farmer who's been at it since 1966, growing his wheat operation
to 16,000 acres today, who said ag policy needs to "redefine
family farm or quit using the term."

"Should we penalize those who produce the food for America
and many others—those who saw the future coming and prepared
by trying to be competitive in a world market?" DeBuff asked
rhetorically. "The small [farmers] will not expand. They are
making a good living doing something else and have no desire to
become competitive. The lawyer, the doctor or teacher who has a
farm with a $10,000 gross [farm income] should not be protected
by farm policy or tax policy. This is a hobby. ... If [farm policy]
is to be a social program, we should separate that from ag policy."

While the notion of large-scale farming might not square with the
public's own farm nostalgia, small farms with sales even under $100,000
often offer little means for survival. USDA data show that the average
full-time farmer with sales of less than $100,000—the rough
equivalent of harvesting about 400 acres of corn—receives virtually
no net income from farming and depends on off-farm jobs for all
household income. But as farm sales increase above $100,000, farm
households derive an increasing portion of their income from the
farm itself.

"There's no way a farmer can make a living on that small a
scale," said Nancy Johnson, who has been farming with her husband
for 21 years in Milbank, a town of about 3,600 in northeastern South
Dakota, about 10 miles from the Minnesota border. They have a feedlot
with room for 4,000 head of cattle, and they farm 1,200 acres of
corn and alfalfa that they market through the feedlot. While federal
farm policy "is trying to keep the farmer in business,"
many farmers going out of business "are not running an efficient
operation," Johnson said, part of which is related to size. "I
don't think you can make a living unless you're farming a thousand
acres."

A long, slow shift?

Despite all the wrangling, all the debate, all the finger-pointing
over who gets what, from a broader view the new farm law from Washington
will likely be much of the same, with small changes on the margin.

That doesn't necessarily mean that farm policy is going back to
the past. Anne Effland, the social science analyst with the ERs,
suggested that the 1996 bill was a significant break with past policy—at
least on paper, if not in execution—by exposing farmers to
greater supply-and-demand forces, and might signal a larger policy
transition that is likely to take years to fully unfurl. While many
point to the 1933 law as the official shift to farm income policy
in the United States, "it didn't come out of nowhere,"
Effland pointed out. Rather, the debate started in the 1920s and
was accelerated by the Great Depression.

A similar debate about income-support policy goes back as far as
the 1950s. "There's been a lot of disagreement for a long time,"
Effland said. Current farm proposals might return philosophically
to pre-1996 farm bills, but Effland said that pieces of the 1996
bill remain—like flexible planting, which is widely applauded
by farmers—that set the groundwork for future changes.

"It's hard when you're in the middle of change to know what direction
you're going to go."